EU supplier directive: vote on obligations for businesses postponed

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The key vote on the European Supply Chain Act has been postponed, which would have put the competitiveness of European industry at risk in a complex economic and geopolitical scenario. The about-face of Germany, Austria, Finland and Italy was decisive, after the appeal launched by the national Confindustria associations and the continental BusinessEurope. The request of the industrial representatives was clear and unanimous, in particular in Germany and Italy: to block the text of the proposed European directive on Corporate Responsibility Due Diligence (CSDDD) because a regulation thus conceived – and judged cumbersome, difficult to apply and invasive – would have increased the cost of industrial supplies with consequent difficulties for businesses and new inflationary tensions. The negotiations now reopen, on new bases, one step away from the decisive vote which had been set for February 9th.
European companies had raised the alarm because the Csddd would have imposed verification obligations throughout the supply chain resulting in increased procurement and monitoring costs. The appeal of the European industry association BusinessEurope did not go unheeded.

Germany’s about-face

In Germany, a political battle has taken place in recent days, with opposing sides of parties, to block at the last minute a text deemed too punitive for companies in the current situation. Also in Italy, Confindustria had officially asked the Government to abstain (therefore to express a negative position) on the proposed directive at the final vote.
For once, perhaps the first of a series (given the ongoing economic slowdown), Germany has abandoned the ecological line that characterized its support for the green-oriented von der Leyen Commission, effectively converging with the Italian positions. Positions, those of the Meloni Government, which have been critical for several months on the rain of green regulations and directives (such as those on cars and packaging) all launched together, with little support measures to facilitate a just transition and without the necessary technological neutrality to allow individual States to achieve the agreed results in the way best suited to their economic and technological system. Until now, Italy was alone in Europe in this battle, judged to be “backward” and inadequate in the face of the ongoing climate change emergency. Now Germany and other Nordic countries, with today’s breakthrough at the European Council and at the Coreper meeting in Belgium, have broken the European front, putting an end to Italian isolation.
In fact, it was enough for Germany to announce – like Austria, Finland and Italy – that it would abstain at the time of the vote to start frenetic negotiations at the last minute to save the vote of 9 February on the CSDD directive. But the German comments were deemed “extensive”, according to rumors from Belgium, and the vote was postponed, to give the negotiations more time to take place. According to a preview by Radiocor Il Sole-24 Ore, which beat all the European agencies to the punch, Germany, Austria and Finland had already announced their abstention, which for the purposes of the vote would have been counted as a negative vote. Italy would have been added to these three countries, again with abstention. If the ambassadors had voted, the blocking minority would have dramatically emerged, preventing the necessary majority from being reached. The position of the four countries reflects that taken by the majority of the industrial world which considers the impact of those rules on the activities of companies to be too burdensome.

The appeal of businesses

Confindustria’s reaction to the news launched by Radiocor Il Sole-24 Ore was positive. «Due to the rules of the qualified majority, Italy’s abstention was also needed to stop the current text, cumbersome and unmanageable, of a directive critical for businesses and European competitiveness – explains Stefano Pan, delegate of the president of Confindustria for Europe and vice-president of BusinessEurope -. This is why we asked the Italian Government to abstain during the voting phase, in order to allow the negotiations to restart.”
Moreover, the same alarm of German companies was received by Germany, which opted for an about-face from the ecological battle following a lively internal debate, which divided the parties and received widespread echo, in a country grappling with strikes and rising concern for industrial estate.
«The debate on the European directive was highlighted for days on the news in Germany and was widely echoed due to its symbolic significance – says Pan -. German companies, like those in Italy and other countries, are very worried about the launch of extremely complex and invasive legislation due to its global reach. We therefore hope that negotiations will be reopened to avoid an uncontrolled increase in supply costs, in a delicate economic phase and in a critical geopolitical scenario”.

Why the CSDD directive is worrying

At the center of the controversy is one of the key directives to complete the European anti-climate change strategy created with the Fit for 55 regulatory package and the Green new deal. The Csddd directive – also called Csdd, Cs3D or more symbolically the Eu Supply Chain Act – will in fact provide companies with a duty of diligence (due diligence) for the purposes of social sustainability, aiming to promote sustainable and responsible behavior along the entire value chain. In essence, companies will have to prevent their operations from having negative effects on human rights, such as child labor and worker exploitation, and on the environment, such as pollution and loss of biodiversity.
All shareable, in principle.
«But in a study just carried out, BusinessEurope calculates that the control of all suppliers (and their suppliers) will lead to a considerable increase in costs, to monitor the entire supply chain, continuously control the supply chain and provide compliance guarantees – explains Pan – . In the case of a medium-sized company, the study calculates that costs can reach up to four million euros; not to mention the costs of a possible disruption to the supply chain, which could occur if many companies changed suppliers in such a complex geopolitical and economic moment. Let’s think for example of our leather tanning and construction sectors: the risk of new shocks along the supply chain worries us.”

What does the Supply Chain Act provide?

The proposed directive, whose approval so far has been taken for granted after a debate and a regulatory process lasting two years, provides for a very strong duty of care for companies, from a social and environmental point of view. Companies above 40 million in turnover will be required, in their operations, subsidiaries and value chains, to identify, stop, avoid, mitigate and account for adverse effects on human rights and the environment. Furthermore, certain large companies must have a plan to ensure that their business strategy is compatible with limiting global warming to 1.5°C, in line with the Paris Agreement.
Administrators would be incentivized (with unspecified benefits) to contribute to sustainability and climate change mitigation objectives. But they will also have strong responsibilities. In particular, they will be required to integrate duty of care into the company strategy, establish the relevant processes and monitor their implementation. Furthermore, in fulfilling their obligation to act in the best interests of the company, directors will have to take into account the consequences of their decisions on human rights, climate change and the environment. Along the entire supply chain and also for supply contracts already signed and binding on a multi-year basis.

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